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Under 10 U.S.C. 2466, not more than 50 percent of each military department's annual depot maintenance funding can be used for work done by private-sector contractors. The Department of Defense (DOD) also must submit two reports to the Congress annually on the division of depot maintenance funding between the public and private sectors--one about the percentage of funds spent in the previous 2 fiscal years (prior-years report) and one about the current and 4 succeeding fiscal years (future-years report). As required, GAO reviewed the two DOD reports submitted in early 2003 and is, with this report, submitting its views to the Congress on whether (1) the military services met the so-called "50-50 requirement" for fiscal years 2001-2 and (2) the projections for fiscal years 2003-7 are reasonable estimates. GAO also identified opportunities to improve the reporting process.

Continuing weaknesses in DOD's data gathering, reporting processes, and financial systems prevented GAO from determining with precision if the military services complied with the 50-50 requirement in fiscal years 2001-2. DOD data show all the services, except the Air Force in fiscal year 2001, to be below the 50-percent funding limit on private sector work. However, as before, GAO found errors in the data that, if corrected, would overall increase funding of the private sector and move each service closer to the contract limit. For example, for fiscal year 2002, the Navy did not include about $401 million in private sector maintenance work on aircraft carriers and surface ships. Correcting for these and other errors would increase the Navy's percentage of private sector depot maintenance funds for that year from the 42.6 percent reported to 46.9 percent. Such data weaknesses show that prior-years reports do not precisely measure the division of maintenance funding. At best, over time these results provide rough approximations and indicate trends that may be useful to decision makers. Because of data deficiencies and changing budget projections, the futureyears report does not provide reasonable estimates of public and private sector maintenance funding for fiscal years 2003-7 and limits its usefulness to decision makers. GAO reported this shortcoming in the past, and problems continue. For example, the Army underreported maintenance work at nondepot locations as it continues to consolidate the work and better control it at such locations. Other Army work was not reported because some commands did not receive guidance and others misapplied it. These errors would add about $200 million annually to the Army's future estimate and increase the percent of projected funding in the private sector. Opportunities still exist for improvements, including for streamlining the 50- 50 reports, continued service audit agency support, and data development. Streamlining the 50-50 reports could help address problems caused by, among other factors, inexact program estimates. Second, although DOD is concerned that recent revisions to federal audit standards could keep service auditors from further participation in the 50-50 process, GAO believes that a way can be developed to enable auditors' continued support yet ensure their independence. Third, data development could be helped by better disseminating guidance and training participating personnel.

Matters for Congressional Consideration

Status: Closed - Implemented

Comments: Citing GAO's report, both the Senate and House Armed Services Committees' reports accompanying the National Defense Authorization Bill for Fiscal Year 2005 contained provisions that would implement different elements of GAO's Matters for Congressional Consideration by amending 10 U.S.C. 2466. Subsequently, Congress, in its Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375), combined the 50-50 reporting requirements into one report and reduced the scope to a 3-year period (preceding fiscal year, current fiscal year, and ensuing fiscal year) as GAO suggested.

Matter: Given that we continue to see the same problems and complicating factors in our current and past assessments of 50-50 reports and considering that the volatile nature of budget estimates is not likely to change, the Congress may wish to consider amending 10 U.S.C. 2466 to require only one annual 50-50 report. The single report would cover a 3-year period (prior year, current year, and budget year) for which the data are generally more reliable and the potential impacts more immediate.

Status: Closed - Implemented

Comments: Citing GAO's report, both the Senate and House Armed Services Committees' reports accompanying the National Defense Authorization Bill for Fiscal Year 2005 contained provisions that would implement different elements of GAO's Matters for Congressional Consideration by amending 10 U.S.C. 2466. Subsequently, Congress, in its Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375), combined the 50-50 reporting requirements into one report and extended the due date for the single report to April 1 of each year as GAO suggested.

Matter: The Congress may also wish to consider extending the due date for the single report from February 1 of each year to April 1; this would provide more time for the military departments to collect and validate data and allow for the incorporation of more actual cost data for the current year estimate.

Recommendations for Executive Action

Status: Closed - Implemented

Comments: In its July 25, 2003, response to GAO's draft report, the Department agreed with the recommendation, but did not identify any specific actions that would be taken to implement the recommendation. In our report the following year, "Depot Maintenance: DOD Needs Plan to Ensure Compliance with Public-and Private-Sector Funding Allocation" (GAO-04-871), we repeated our recommendation. DOD agreed, and in its FY2004 data call to the DOD military departments directed them to use either service audit agency or an agreed-upon alternate method for third party review and validation of this data and to ensure auditor-identified errors in the data are corrected before submission of the 50-50 data.

Recommendation: To enhance data verification and validation, the Secretary of Defense should require the secretaries of the military departments to direct the use of service audit agencies, or an agreed-upon alternate method, for third-party review and validation of 50-50 data and to ensure that auditor-identified errors in the data are rectified before reports are submitted to the Congress.

Agency Affected: Department of Defense: Department of the Air Force

Status: Closed - Implemented

Comments: In its July 25, 2003, response to GAO's draft report, the Department agreed with the recommendation, but did not identify any specific actions that would be taken to implement the recommendation. In our 50-50 report the following year (Depot Maintenance Needs Plan to Ensure Compliance with Public- and -Private Sector Funding Allocation - GAO-04-871), we repeated this recommendation. DOD agreed and in its FY2004 data call to the military departments directed them to use either their service audit agency or an agreed-upon alternate method for third-party review and validation of data and to ensure that auditor-identified data errors are corrected before submitting the 50-50 report.

Recommendation: To enhance data verification and validation, the Secretary of Defense should require the secretaries of the military departments to direct the use of service audit agencies, or an agreed-upon alternate method, for third-party review and validation of 50-50 data and to ensure that auditor-identified errors in the data are rectified before reports are submitted to the Congress.

Agency Affected: Department of Defense: Department of the Navy

Status: Closed - Implemented

Comments: In its July 25, 2003, response to GAO's draft report, the Department agreed with the recommendation, but did not identify any specific actions that would be taken to implement the recommendation. In our report the following year, "Depot Maintenance: DOD Needs Plan to Ensure Compliance with Public-and Private Funding Allocation" GAO-04-871, we restated our recommendation. This time DOD agreed, and in its FY2004 data call to the military departments, directed them to use either service audit agency or an agreed-upon alternate method for third party review and validation of data and to ensure that auditor-identified errors in the data are corrected before submittal of the 50-50 data.

Recommendation: To enhance data verification and validation, the Secretary of Defense should require the secretaries of the military departments to direct the use of service audit agencies, or an agreed-upon alternate method, for third-party review and validation of 50-50 data and to ensure that auditor-identified errors in the data are rectified before reports are submitted to the Congress.

Agency Affected: Department of Defense: Department of the Army

Status: Closed - Implemented

Comments: In its July 25, 2003, response to GAO's draft report, the Department agreed with this recommendation, noting that it would reinforce this existing policy during future reporting cycles. In our report the following year, "Depot Maintenance: DOD Needs Plan to Ensure Compliance with Public- and Private-Sector Funding Allocation" (GAO-04-871), we repeated this recommendation. DOD agreed with our recommendation and in its FY2004 data call to the DOD military departments directed that they provide proper and prompt training to personnel gathering and reporting 50-50 data and that management attention be given to producing accurate and complete reports.

Recommendation: To ensure consistent and complete reporting, the Secretary of Defense should direct the secretaries of the military departments to ensure that 50-50 reporting guidance is appropriately disseminated to reporting organizations and individuals and that staff are properly and timely trained in the application of the guidance.

Agency Affected: Department of Defense: Department of the Air Force

Status: Closed - Implemented

Comments: In its July 25, 2003, response to GAO's draft report, the Department agreed with this recommendation, noting that it would reinforce this existing policy during future reporting cycles. In our report the following year, "Depot Maintenance: DOD Needs Plan to Ensure Compliance with Public- and Private-Sector Funding Allocation" (GAO-04-871), we repeated this recommendation. DOD agreed with our recommendation and in its FY2004 data call to the DOD military departments directed that they provide proper and prompt training to personnel gathering and reporting 50-50 data and that management attention be given to producing accurate and complete reports.

Recommendation: To ensure consistent and complete reporting, the Secretary of Defense should direct the secretaries of the military departments to ensure that 50-50 reporting guidance is appropriately disseminated to reporting organizations and individuals and that staff are properly and timely trained in the application of the guidance.

Agency Affected: Department of Defense: Department of the Navy

Status: Closed - Implemented

Comments: In its July 25, 2003, response to GAO's draft report, the Department agreed with this recommendation, noting that it would reinforce this existing policy during future reporting cycles. In our report the following year, "Depot Maintenance: DOD Needs Plan to Ensure Compliance with Public- and Private-Sector Funding Allocation" (GAO-04-871), we repeated this recommendation. DOD agreed with our recommendation and in its FY2004 data call to the DOD military departments directed that they provide proper and prompt training to personnel gathering and reporting 50-50 data and that management attention be given to producing accurate and complete reports.

Recommendation: To ensure consistent and complete reporting, the Secretary of Defense should direct the secretaries of the military departments to ensure that 50-50 reporting guidance is appropriately disseminated to reporting organizations and individuals and that staff are properly and timely trained in the application of the guidance.